Medtronic Likely To Benefit From St. Jude’s Share Loss in Key Cardiac Rhythm Management Segment

St. Jude (NYSE:STJ) released second quarter earnings this morning, and issued lower sales guidance for its Cardiac Rhythm Segment (CRM), which represents over 50% of revenues and is a major driver of earnings. STJ has been dealing with a Class I recall of its Riata defibrillator lead, a wire that connects an implanted defibrillator to the heart. Malfunctions linked to this lead could cause serious adverse events and death. Importantly, the recall of these implanted leads is a hardship for patients and physicians and is likely impacting STJ’s business. STJ guided for CRM sales in the $2.86-$2.90 billion range for 2012, below its previous guidance in the range of $3.00-$3.08 billion. CRM represents about one-third of Medtronic’s (NYSE:MDT) sales and is also a major driver of revenues and earnings. STJ’s admission that it is losing share this year indicates that MDT could be picking up that share in this market. Expect STJ weakness today, with a corresponding uptick in MDT on the news. At just 10x forward earnings, MDT trades at a discount to its peers, and is a favorite of value investors as the company continues to execute on its turn-around strategy.

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